Consumer plays could hedge an energy portfolio BloombergMoney managers try new ways to invest in energy stocks.Energy stocks don’t rank high on investors’ wish lists at the moment, given how poorly they have performed as oil prices have tanked. Oil analysts aren’t betting on a recovery in oil prices CLJ5, +0.04% any time soon, but some money managers nonetheless are urging clients to invest in the sector. Their biggest caveat? Be patient, and have an investment horizon of at least one year. Steven Rees, head of equity strategy at J.P. Morgan Private Bank, is telling clients to buy both energy stocks and consumer-discretionary plays. The thinking is that if energy prices fall, gasoline will be cheaper and consumers will have more money to spend on other items, such as clothing and dining. Conversely, if oil prices rise, gains in energy stocks will more than offset any drop in consumer plays. The selloff is energy stocks has unfairly battered some of the sector’s better-quality names, said Rees, who advises millionaires on how to invest their money. He declined to name specific stocks, but said to focus on large-integrated energy companies that offer geographic diversification — and pay dividends — as well as smaller players focusing on U.S. oil production that enjoy low debt levels. While Rees recommends picking individual stocks, he said the strategy also could be followed with a blend of ETFs, based on an investor’s risk tolerance and time horizon. Among the largest ETFs focusing on energy and consumer products are State Street’s Consumer Discretionary Select Sector XLY, -1.19% and Energy Select Sector. XLE, -1.79% Among the consumer plays, investors can look not only at traditional big retailers also but also fast-food chains and even U.S. airlines and U.S. car makers, he said. Analysts at Simmons & Co. also are stressing “high-quality” companies that have been battered in recent months. “We encourage investors to opportunistically pick up high-quality E&P’s on weakness, especially if accelerated (crude) storage builds force near-term oil prices lower,” they said in a note Tuesday. Favorite names for Simmons include Anadarko Petroleum Corp. APC, -1.34% Devon Energy Corp. DVN, -2.71% and EOG Resources Inc. EOG, -1.14% as well as small- to mid-cap companies such as Diamondback Energy Inc. FANG, -1.85% and Newfield Exploration Co. NFX, -2.35%Energy bonds could become distressed Don’t forget bonds, analysts at Brown Brothers Harriman said. In a broad, quarterly report published last month, Brown Brothers’ strategist Thomas Martin wrote that oil prices will eventually trend higher, but the short-term pressures on the industry “are very real.” The private bank’s analysts focus on high-quality stocks and recommend adding to holdings on weakness. Another area of focus, however, is debt. In recent years, companies “have raised large amounts of non-investment-grade debt to explore for and produce oil, and much of that debt is currently trading at stressed or distressed levels,” he wrote. Oil consistently had traded between $80 a barrel and $105 a barrel for more than four years, and capital markets “became comfortable underwriting the fundamentals of energy companies with these price levels as a base,” Martin wrote. “With the precipitous fall in oil prices, however, many of the high-cost producers are now burning cash at unsustainable rates. A number of these businesses own strong underlying assets, but their capital structures will need to be restructured if oil prices remain at current levels.” That may eventually create opportunity in distressed debt, Martin wrote. He estimated there is more than $40 billion of high-yield energy debt trading at or below 75 cents on the dollar. Of the about $230 billion in high-yield energy debt, $70 billion could be distressed within one year if oil prices remain where they are, he wrote. Claudia Assis